Dollar Rallies Toward Multi-Month Highs Amid Fresh Treasury Yield Surge
The greenback rose towards its strongest level in 18 months on Thursday (Oct 8), after minutes from the US Federal Reserve signalled policymakers viewed inflation as the biggest risk to their outlook, while higher oil prices and rising eurozone bond yields have weighed on the euro.
The global bond sell-off has been the dominant driver in currency markets in recent weeks, with yields rising again on Thursday as oil prices jumped.
The widening gap in yields between German bonds and those of more indebted countries in the eurozone, such as France and Italy, has pushed the euro to its lowest level since May 2025.
French government bonds have come under particular selling pressure due to worries about France’s deteriorating fiscal situation, ahead of the 2027 presidential election.
“If you look at euro-dollar, it’s not only about dollar strength, but (also) euro weakness coming from the political situation in France,” said Tommy von Bromsen, FX strategist at Handelsbanken.
The euro was down 0.2 per cent on Thursday at US$1.1174, close to its lowest level in 17 months, as the spread between German and French 10-year yields, a market gauge of risk premium attached to France, widened by five basis points.
The dollar index, which measures its strength against a basket of six currencies including the euro, was up 0.2 per cent at 102.40 after rising 0.4 per cent on Wednesday.
The US currency remains within a few pips of its strongest levels since Apr 9, 2025, following the market turmoil that accompanied US President Donald Trump’s so-called “Liberation Day” tariff announcement the previous week.
Fed policymakers voted unanimously to raise interest rates by a quarter of a percentage point at the US central bank’s Sep 15 to 16 meeting. The minutes from that meeting released on Wednesday indicated that policy might need to be tightened further.
“There was no major surprise, but I think they were on the hawkish side,” said Handelsbanken’s von Bromsen.
The minutes did little to shift expectations that the Fed would stand pat at its meeting later in October.
Fed funds futures are pricing an implied 80 per cent probability the US central bank will keep rates on hold at its next two-day meeting ending Oct 28, while a hike in December is fully priced in, going by data from the London Stock Exchange Group.
Against the yen, the US dollar was up 0.1 per cent at 158.27.
This reverses a short-lived dip after data released on Thursday showed Japan’s current account surplus stood at 4.062 trillion yen (US$25.7 billion) in August, higher than economists’ median forecast of a surplus of 3.19 trillion yen.
The Australian dollar was down 0.3 per cent at US$0.6943, while its kiwi counterpart was down 0.2 per cent at US$0.5588.
Against the renminbi, the US dollar was flat at 6.7050 in offshore trade.
This article was first reported by Reuters
